|Court:||United States District Court for the Southern District of Ohio|
|Case Leaders:||Jeroen van Kwawegen, Hannah Ross|
|Case Team:||Alla Zayenchik, Matthew Traylor, Margaret Sanborn-Lowing|
On January 25, 2021, BLB&G filed a stockholder derivative complaint in the Southern District of Ohio on behalf of nominal Defendant FirstEnergy Corp. (“FirstEnergy” or the “Company”), Co-Lead Plaintiffs Employees Retirement System of the City of St. Louis and Electrical Workers Pension Fund, Local 103, I.B.E.W., and additional plaintiff Massachusetts Laborers Pension Fund against certain current and former officers (collectively, “Defendants”) of FirstEnergy. Plaintiffs allege that Defendants breached their fiduciary duties, unjustly enriched themselves, wasted FirstEnergy’s assets, and violated Section 14 of the Exchange Act of 1934.
This case arises out of what the United States Attorney for the Southern District of Ohio declares “is likely the largest bribery, money laundering scheme ever perpetrated against the people of the state of Ohio.” FirstEnergy stands accused of funneling over $60 million of FirstEnergy funds to the former Speaker of the Ohio House of Representatives Larry Householder (“Householder”) and other public officials in exchange for favorable legislation, causing the largest political bribery scandal in the history of Ohio and one of the most egregious examples ever of the misuse of corporate funds to undermine our country’s system of representative government.
FirstEnergy is one of the largest investor-owned electric utility companies in the country. By late 2016, the Company was struggling to remain profitable due to the ebb of demand in nuclear power. Faced with these difficulties, Defendants decided to seek “legislative solutions” to the Company’s financial woes. Between 2017 and 2019, FirstEnergy transferred tens of millions of dollars—while publicly reporting only a fraction of that amount—to various entities controlled by Householder to support Householder’s bid for Speaker of the House, and to support other House candidates that FirstEnergy and Householder believed would vote for Householder’s Speakership candidacy. Eventually, through the use of these illegally secured funds, Householder was elected Speaker of the House in 2019. Subsequently, Householder and his associates introduced and passed HB6, which subsidized FirstEnergy’s power plants to the tune of over $1 billion dollars. During the same period of time, FirstEnergy’s board of directors repeatedly rejected concerned shareholders’ proposals to increase transparency into FirstEnergy’s political spending. Defendants ploy would meet a rude awakening, however, as on July 17, 2020, the U.S. Attorney for the Southern District of Ohio filed an 80-page criminal complaint with an FBI affidavit against two FirstEnergy lobbyists, Householder, and Householder staff members, identifying FirstEnergy in all but name. Various stakeholders have subsequently filed lawsuits against FirstEnergy, both civil and criminal.
On May 11, 2021, the Court denied Defendants’ motion to dismiss in its entirety. In its decision, the Court found that the Complaint satisfied the particularity requirements under Rule 9 and the PSLRA, as “Plaintiffs [have made] extensive and detailed allegations suggesting that the FirstEnergy Defendants issued numerous false or misleading statements through the proxies.” The Court further found that Plaintiffs had standing and had successfully pled demand futility, determining that “Plaintiffs have alleged by clear and convincing evidence that Defendants’ ‘knew or recklessly disregarded reports and “red flags” that FirstEnergy was paying massive amounts of illicit bribes to Householder and other public officials to ensure passage of legislation’ and took affirmative steps to conceal the scheme.”
On July 22, 2021, both the Company and the Department of Justice announced that FirstEnergy had signed a historic deferred prosecution agreement (“DPA”) which included a fine of $230 million. In its DPA, FirstEnergy admitted that it had “paid millions of dollars to [Householder] . . . in return for [Householder] pursuing nuclear legislation for FirstEnergy Corp.’s benefit in his capacity as a public official.”
BLB&G continues to vigorously prosecute this action.
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